May 26, 2010

PORT-AU-PRINCE, Haiti — In one of the few offices of Teleco Haiti that survived January’s catastrophic earthquake, the customer service agents sit idle. The state-run phone company is barely limping back to service.

Before the quake, Teleco was a corruption-gutted, money-hemorrhaging albatross. Fewer than 2 percent of Haitians had service from its landline monopoly while Teleco’s high-speed data network was minuscule. And while it controlled wireless spectrum, it had no competitive cell phone service.

That makes one company’s decision to buy a majority stake in Teleco and commit to resuscitating it so remarkable.

That company, Viettel, is run by communist Vietnam’s military. A half-dozen of its engineers in crisp, button-down shirts pound away on laptops in a newly air conditioned room next to the empty Teleco customer-service office.

In its first foray into the Western Hemisphere, Viettel has made the biggest direct foreign investment in Haiti since the Jan. 12 quake. It bought 60 percent of Teleco for $59 million and committed $40 million more to get the company moving again.

Viettel is promising not just to rebuild Teleco’s infrastructure but also to deliver cheap Internet services to all corners of the hemisphere’s poorest country, says Michel Presume, who has been director-general of Teleco since 2006 and prepared its sale.

For now Haiti’s Internet access comes from private competitors that charge an average of $65 a month — far beyond the reach of all but Haiti’s tiny elite — for a connection of 128 kilobits per second, not much faster than dial-up.

Presume, who previously helped privatize Haiti’s cement and flour industries, says “this one is going to make a big difference” for the nation of 9 million people, 80 percent of whom live on less than $2 a day.

Viettel won control of Teleco through an auction the International Finance Corp., an arm of the World Bank, organized before the quake. Haiti’s central bank had been Teleco’s sole owner, and the auction reduced its stake to 40 percent.

Haiti’s two dominant cellular carriers, Digicel and Voila, also made bids, but their offers were rejected as inadequate and potentially anti-competitive. Digicel is a subsidiary of the Irish-owned Digicel Group; Voila is owned by Bellevue, Wash.-based Trilogy International Partners.

The winning bid was announced in December, so the Vietnamese could have opted to pull out after Teleco’s physical assets were mostly pulverized in the quake, which the government says killed 230,000 and made 1.3 million homeless.

Viettel decided to soldier on.

It got Teleco’s prized spectrum and Internet licenses in return for committing to build a nationwide fiber-optic backbone, which carries data at high speeds, along with cell phone and high-speed WiMax wireless data networks.

Viettel also committed to laying a new submarine cable to Florida and to repair a quake-damaged undersea link with the Bahamas that Teleco never put into service.

Viettel says it can build the Internet backbone in a year, laying 5,000 kilometers (3,100 miles) of fiber and linking the country’s 10 biggest cities, according to Presume. Free Internet is planned for 1,300 mostly rural public schools and for government offices, hospitals and clinics.

For such a network to be built, far more investment is needed than Viettel has publicly committed, analysts and competitors say, especially given Haiti’s stymied development.

Viettel has been silent on its revival plans. Repeated attempts by The Associated Press to interview Viettel officials were politely spurned, both at company headquarters in Hanoi and in Port-au-Prince.

Digicel’s chief executive for Haiti, Maarten Boute, says his employer did not match Viettel’s bid for Teleco because, for one, it considers building a nationwide fiber network a money-losing proposition.

The parent of his main competitor, Voila, apparently agrees. Trilogy Partners’ John Stanton has proposed Haiti become the world’s first all-wireless nation.

“Our vision for the rebuilding of Haiti is to leapfrog older technologies,” Stanton said in March. The proposal has been echoed by former U.S. President Bill Clinton, who is co-directing Haiti’s reconstruction.

Stanton’s pitch to make Haiti “copper-free” may be self-serving; his company is the biggest U.S. investor in Haiti, where two in five people now have cell phones. But his argument also reflects the desperate poverty of Haiti, where the theft of copper wires is common.

Gregory Groth, economic counselor at the U.S. Embassy, recalled how in the late 1990s his future wife had to constantly summon Teleco repairmen because her Internet dial-up service kept going down.

“We’ll see how serious they (Viettel) are when they find out how difficult it is to maintain infrastructure here in Port-au-Prince,” Groth said.

Teleco hasn’t earned a penny since the quake but it also hadn’t made money since 2001, recently losing more than $1 million a month.

It had no more than 40,000 paying customers pre-quake and went from $16.8 million in revenue from international calls in 2005 to $1.6 million in 2008 — a far cry from well over $100 million annually in the late 1990s.

Plunging international rates and Haitians’ use of Internet telephony and calling cards were in part to blame for Teleco’s drop-off. But a failure to modernize — and downright theft — were major factors, company officials say.

“I believe that Teleco was going to die” had Viettel not come to the rescue, says Yves Bastien, the official from Haiti’s privatization agency who helped broker the deal.

Teleco’s landline system was oversaturated by calls and constantly failing. Getting a new line often took years — unless you were willing to bribe a Teleco employee to install an unregistered line. That you could get in a day.

Presume says his mother requested a phone line when he was in college.

“When I became general director, she got one,” he says, laughing. “That’s more than 30 years.”

Teleco was a patronage mill, looted by successive governments. The government of former President Jean-Bertrand Aristide so engorged Teleco’s payroll with political appointees that the staff was halved from more than 4,400 after he was forced into exile in South Africa in 2004.

Teleco officials also set up sweetheart deals with U.S.-based international carriers in which Aristide allegedly reaped kickbacks. Teleco’s director of international relations from 2001 to 2003, Robert Antoine, pleaded guilty in a federal court in Miami in March to receiving more than $350,000 in bribes from two U.S. telecom companies in exchange for secretly negotiated preferential rates.

The sleazy dealings even reached into U.S. politics.

Former U.S. Rep. Jim Courter of New Jersey quit as a finance co-chair of Sen. John McCain’s GOP presidential campaign in 2008 shortly after the Federal Communications Commission fined the telecom company he then headed, IDT Corp. The FCC said IDT failed to notify the government of a reduced-rate contract signed with Teleco. The company later settled for $400,000.

A former employee who had sued IDT alleged the discount enabled the company to illegally enrich Aristide through a front company in the Turks and Caicos Islands. That lawsuit is still pending in a federal court in New Jersey.

Another legacy of the Aristide days could haunt Teleco’s revival.

Fritz Gerald Charles, president of a group of former Teleco employees who claim the company owes them severance and back pay, says members of the group “will keep Viettel from functioning if they don’t get paid.” He adds, however, that he personally has no intention of engaging in sabotage.

Likely to be a far more serious challenge for Viettel is the high cost of business, says Voila’s CEO, Robin Padberg.

“You don’t have basic utilities. You don’t have roads. You don’t have clear land titles,” he says. The electric grid is unreliable, so businesses must invest in expensive diesel-powered generators.

He and other Haitian officials say they were impressed with Viettel’s growth in just a decade to become Vietnam’s No. 1 wireless carrier while expanding profitably into neighboring Cambodia and Laos.

Company engineers are also about to embark on a project laying fiber-optic cable in socialist Venezuela, according to that country’s state-run telecommunications company, CANTV.

Bastien says Viettel’s engineers have a great competitive advantage: They are far less expensive than North Americans or Europeans.

The 18 or so Viettel engineers who came to Port-au-Prince in April share a rented house and a pair of two-bedroom apartments, he says. And to further keep costs down, Bastien added, they plan to employ about 50 Cuban engineers.

Teleco’s deputy director general, Yves Armand, has spent six years readying the company for this day and exudes confidence in his Viettel partners.

“We’re going to make a difference,” he says. “And these people are serious. Once they make a commitment, they stick to it. They are people of their word.”

Contributing to this report were Associated Press Writer Tran Van Minh in Hanoi, Vietnam, and Farah Doura in Port-au-Prince.